Services growth declines to 6-month low in May: PMI

At 51 points in May, it is weakest since Nov 2015

Services sector growth fell drastically in May compared with April, as new businesses were not as forthcoming, showed the Purchasing Managers’ Index (PMI) survey. This was the second consecutive month of deceleration of growth  in services, the biggest sector of India’s economy.

Services PMI declined to 51 points in May, the weakest since November 2015, from 53.7 in April. The index  was 54.3 in March. The 51 points still represent growth because a reading above 50 represents expansion, while one below it means contraction.

The data came barely three days after the latest gross domestic product numbers showed the two largest services, financial and trade, grew by more than 10 and 9 per cent, respectively, in 2015-16.

The PMI data showed new business growth was slowest in May since July 2015. Nonetheless, respondents said growth was restricted by increased competition and the Assembly elections in some regions.

Though some firms took on additional staff, the overall pace of job creation was fractional.

Output rose in three of the six tracked categories — transport & storage, post & telecommunication and financial intermediation. The latter saw the strongest rate of increase.

“The gloomy growth picture will be a concern to policymakers and will raise the chances of further cuts in interest rates by the Reserve Bank of India,” said economist Pollyanna De Lima. The central bank will unveil its monetary review on Tuesday.

Earlier, PMI data had shown the manufacturing sector also remained subdued as the index had risen to only 50.7 points in May, from 50.5 in April.

As such, composite PMI output index fell to a six-month low of 50.9 in May, from 52.8 in April, said Markit Economics, which compiles the data.

Services companies expect output to increase over the coming 12 months but the degree of optimism weakened to the lowest since February.